A man walks past the head office of the Central Bank of the Republic of Turkey (TCMB) in Ankara. (Altan Gocher / NurPhoto via Getty Images)

Global markets have stabilised after initial fears that Turkey’s crisis would spread to other emerging economies or even Europe – but that does mean the danger is over.

Turkey plays a key geopolitical role as a NATO member that makes any threats to its stability even more important to its neighbours.

Investors fear the crisis could spread to other vulnerable emerging states like South Africa and Argentina, while some European banks hold substantial exposure to Turkish assets.

Turkey’s deepening currency run, which some analysts worry may soon morph into a debt repayments crisis, has a good chance of affecting other key markets around the world for one key reason: the country’s political importance to the power struggle between the European Union and Russia is even greater than its economic might.

“Although Turkey is considered an emerging market economy, it’s still a NATO ally and some reports say that we have close to 50 nuclear weapons stored on their soil,” said Chris Zacarelli, chief investment officer at Independent Investor Alliance, in a statement to reporters.

He added that Turkey had been moving away from the US politically, and had made overtures to Russia, China and Iran.

“Since there doesn’t appear to be signs of contagion at this point – although Spanish, French and Italian banks are owed close to $US140 billion by Turkish borrowers – it doesn’t seem like there is much to worry about, but these things can turn on a dime.”

For Alistair George at Edison Investments, Turkey serves as an “example of the effects of tighter US dollar funding conditions in combination with adverse geopolitical developments.”

“Separated from the political angle, a Western-style refinancing and restructuring to resolve the excessively large inflation and current account deficit problems would appear to be a rational response to the problem,” he writes in a blogpost.

“However, the antagonism between the Turkish administration and the US makes this scenario look far-fetched at present. We expect therefore the sense of crisis to persist until either the pressure on the economy forces concessions from Turkey or details of President Erdogan’s new alliances are forthcoming.”

The market consensus is that the Turkish government’s response to the crisis thus far has been way too timid.

“Investors need to see serious economic measures and not political ones to prevent things getting completely out of control,” said Hussein Sayed, chief market strategist at FXTM. “This includes an emergency interest rate hike by the central bank, imposing capital controls, fiscal reforms, securing a rescue package by the IMF or other lenders and ending the current diplomatic fight with Donald Trump. Until such steps are taken, investors will continue to selloff Turkish assets.”